This Week in San Diego Tech News - January 3, 2024

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Happy new year. Happy 2024. Fred and Neil are back with you here for this week and this year in San Diego Tech news. We are stoked to to be with you. Hey Fred. Happy New Year.

Hello. Hello. Happy New Year. And excited for the first podcast of the year.

Yeah man, we, we were pretty regular last year. Missed a few weeks. But I'm excited. We're jumping right at it because man, there's so much to talk through. But first, so everyone, we are, I'm Neil Bloom with Fresh Brew Tech and Tacos and Tech Podcast as well as managing partner at Interlock Capital and Investment Group here based in San Diego. And Fred and I'm Fred Greer, startup.

Journalist here in San Diego and also the editor of Business of San Diego which highlights startups and investors in the ecosystem.

Awesome. Well stoked to do another one of these with you. Always top of the year. It's nice to look back a little bit and look forward. Right. Gives us a little bit of a chance. I know I've been thinking about it and for a few years you and I have actually collaborated on kind of a quarterly and yearly funding wrap up, which I'm glad you took the initiative of and jumped right in on for kind of a year. In review of 2023, you want to dive right into it kind of talk. Take us through what happened in 2023, funding wise.

Yeah. So high level, you know, San Diego startups attracted nearly 4 billion in venture capital in 2023. Some of the top companies that raised that raised this was you know, technology companies or biotech companies and consumer. So the top three were shield AI, another one was Adarx Pharmaceuticals and Ourself which is a beauty company. So these were the three top ones. We put a report together highlighting, you know, the top five companies in each sector. We also looked at, you know, what venture capital funds raised, section 32 as you partners kind of capital, Harping Ventures and even Interlock Capital just closed their fund. We also looked at the top five AI deals. The number one was personal AI which we profiled and they raised 9 million to create their own personal language model. So really just looking at which companies raised the most money, which ones are continuing to grow during this time. I know 2023 was a tough year for early stage startups, but we also saw the late stage companies raise raise additional funding to to weather the storm. So if you're interested, we put that together. We'll link it into the show. Notes. Neal, what are your thoughts on the takeaway of 2023?

Yeah, I think from an investor standpoint, you know, there was, I feel like there was a sub community, investors who are waiting it out still, you know, even in 2020, still waiting out being like, where is the economy? And then how are our companies going to land? And then there was other people who were busy writing checks. And so it's interesting just to think from the investor standpoint, like it's a bit split out there that of what, how are people deploying capital? I know in our, for us, in all capital, we were actually pretty quiet in 2022 and then got back to it in 2023 writing, I think we wrote 10 plus checks, investments in 2023. So, you know, I think that's a good sign that there are still people writing. There are other people being cautious. There's no reason to not be cautious per se and just look for quality deals. So I think that bodes well for San Diego companies. We've always had to be, you know, higher quality as a company because the capital isn't as readily available. And so I think as a community, that bodes well for us to build a good company and the rest will come. But I think coming into 2024, even more is going to be asked to people like that looking at costs and saying, are they really needed? I wonder if, you know, the offices are going to be looked at further now on budget wise, because I don't, I don't. I think the jury's still out on what is in person versus virtual do for company engagement, employee retention and revenue, to be honest. Like, I don't think anyone has determined it's one way or another. And therefore I think people are still waiting to see what happens to the commercial real estate market because of all that. So either way, like 4 billion in investment funds on a cautionary year, right, where people were expecting bad economic vibes. Look, I mean we did have some economic turmoil from like an SVB and other banks collapse and FTX and crypto, you know, kind of getting people spooked and scared. But look at us at the end of this year. Bitcoin and all the cryptos are back up, you know, and big funds are raising, raising their next funds as well too. So I'm excited for 2024. I, I think there'll be people who are still going to be waiting on the sidelines and all of a sudden we're going to go two, three years and they're going to still be waiting and realized that was the best time to deploy when valuations were lower, when companies were scrappier when you know, founders were just getting capital together, getting their team back together and building. So I'm excited that one fund, one for Interlock is finally closed. We're done getting commitments, which means we can just start writing checks and focusing on other things now because just like a CEO, like a founder who's raising and running a company, you know, like it's, it's a distraction. And so I'm, I'm glad to be back on the check writing side for 2024. What are you looking for in this year?

You know, I think 2024 will be the year of more AI companies. It's the hottest thing that people are talking about. I'm very looking closely to crypto companies. I think they're going to have a resurgence as well. And you know, and speaking high level, I think San Diego has just continued to, to mature. You know, it used to not be a top 10 venture hub for, for startups, but has remained so for consistently over the past few years. And so the best companies will find success and our job is to kind of highlight which ones are continuing to grow and make it through, you know, these difficult times.

Yeah, I mean I think the, the, the biggest thing to think through for San Diego is kind of exits like where, where is liquidity going to happen? A lot of companies are later stage companies who are doing really well revenue wise. Now we're talking 2,3 million in revenue for some of these late stage companies. Do is there a liquidity kind of insight? And I've been asking that question so much last year. I'm starting to realize, you know, like, well, do they need to, to, to have an exit? Do they feel the impetus, do they feel the need? Because investors definitely always want that. But is that in alignment with the founders, with the executive team? So I'm looking forward for that of having smarter conversations around, you know, where's the liquidity? And do what I perceive as needing it for the ecosystem and recycling that capital and recycling that talent. Is that really what the companies at the highest levels, latest stages are feeling as well too. We know, you know, the IPO market is still iffy. Right? There's, there was some in 2023 will be more. Well, the stock market's doing great right now. So you know, it might be hopefully a good time for people to say let's go. But you also need like 18 months to plan and prepare. Right. So people need like some time of consistency to say okay, let's do it. But still let's do it means 18 months from now. So you know, I'm not going to necessarily name certain names but the latest stage companies I would expect summer are, are hopefully getting ready to do some, some IPO bandwagon roadshow over the next year to 18 months. On the exit side, you know, let's skip one story here, go to Raise Bio. You know the life science community continues to just be strong on the exits. You know, Raise bio acquired for 4.1 billion. This is another really big single digit billion dollar exit here that we had some big ones in San Diego last year from like Prometheus bio, $10 billion exit and some others and now Raise as well too. This is, this is, you know, this is, this is the difference of mature ecosystem versus not and because you do not see those on the software side at all. So what do you, what do you know about Raise and what do you think this means kind of going forward?

Yeah. So at a high level, Raise Raise Bio was founded by kin song in 2020, 2020 at the Business journal we covered him when they had raised a series A. They've raised a lot of funding. They raised over 400 million in funding over the last three years. They actually went public last year and so they got acquired for $4.1 billion from a major, major life science company. And so in the last year we've seen, you know, multiple billion dollar exits in the biotech companies. As you mentioned, Prometheus Biosciences, DTX Pharma and now Raisey Bio. And what this does is investors in the Bay Area and New York and Boston, they're now looking at San Diego even more trying to find the next Raised Bio to back. And so I think life science companies are continuing to not only attract talent but also capital to see these kind of, these kind of outcomes. And this is a huge win and hopefully that, that capital gets recycled back to the founders and the investors and they continue to invest and build new companies. And we need to see that flywheel effect which will continue to help in our ecosystem to be a competitive innovation, innovation hub.

Totally. And I think you know, as much as there's the good and the bad with an acquisition, you know, with sometimes there is some lightening of the talent in that regard. Right. Eventually. You know, we do know that there's acquisition means trying to combine processes and synergies, but we do hope that it was such a good acquisition that everyone did financially well. And the other piece that typically comes from something like this is that the team usually goes and works on the next thing again as well. Meaning you know what, whenever that and first of all when an acquisition happens there's usually a bit of like a lockup of talent. Getting the talent to stay 6 months, 1 year, 2 years is kind of typical. So you already start thinking through clock ticking of how long this talent is staying and what kind of talent is working on the next thing together. And so that's one thing to look for here. The other thing I look for is who invested and who gained from this. And so looking at their crunch base actually there's actually some, some local capital on raises cap table. Safanova has a local partner as does Versant Ventures as well too are great signs that you know that, that, that some capital will be redistributed back to local investors who will write, you know, will write checks wherever they write. First of all, let me say like investors never ne I have never met that many that are like geo only focused. You just know that in a geographic area there's way more chances to meet more people as opposed to virtually or at conferences. And so you know you have more shots on goal at the local talent investing in them. And so I love seeing that the recyclable capital piece. Speaking of dtx, we got our so new fund ventures, we got our first checks returned back to us from our DTX investment and there are more to come from that. There are more coming from our DTX investment from new fund. So all that like over the holidays you know there's 200 people that just cash checks from a win. They're coming in 2024 saying let's put that money to work again. All good signs here. So congrats to to raise bio and let us know what you're working on next for sure you have a great article out about Epic Gardening which is a really I would say unknown local company but known on the biggest stage. And I know the CEO as Plant Daddy as his TikTok and Twitter handles are. But sounds like you got to talk to, to the, to the founder and CEO here of Epic Gardening. Take us through this story.

Yeah, so here's a scoop. The headline was this 36 year old YouTuber turned CEO wants to build $100 million business in San Diego. If you haven't heard about Epic Gardening, they are a global brand in the gardening space. They're the largest ones. They have a media social media platform with 2 million folks followers on TikTok, 2 million on YouTube, women on Instagram and they have a content to commerce model. So they create content on these different Social media platforms and they funnel that attention to retail products. So you can think of gardening beds or plant food or etc. And in the last, I think in 2022 they did 27 million in revenues. And so this is a startup turn, you know, you know, global business. And they did that through strategic acquisitions and you know, really investing heavily in their content model. And so Kevin is a superstar YouTuber himself. He has over 20,000 followers on Twitter. That's how we connected. And had 25 minutes to kind of really interview him, understand his business and know they only have 22, 22 employees. And they got investment from a large LA venture capital private equity firm called TCG and they actually approached him in 2020, 2021 said hey, we want to invest in you. We have backed companies like OpenSea and Barstool Sports and we think that the gardening industry is really going to take off and you are well positioned to you know, capitalize and create a big business off of your, your content. And so they invested 17 million Series A in that company and they continue to grow. And you know he's told me that he wants to build 100 million dollar business and he wants to do it in San Diego. It's a really cool story if you want to look at it. Check it out, we'll link it in the show notes. And Kevin drew a real stand up guy and he's actually from San Diego. He went to UC Santa Barbara for college and he's proud San Diego native. Yeah, it's, it's really cool to see.

Especially a consumer focused business like this where you know we don't have a lot of in San Diego. Right. So not a lot of other founders to, to relate to on that but built a his own brand while also building this epic gardening brand. Now what's cool about them, they're, they're doing a few things. They're doing, they're acquiring some businesses which we love to see. It's a trend I've been following kind of this roll up model as well as getting funds from kind of domain expert capital. So the Chernin Group, LA based is really into investing in companies that have this go to market engine that is a public brand and if you look at you know like you mentioned some of the portfolio companies like some big brands with some big with people human behind it. In fact they've actually invested in another local company cars and bids.com which founded in San Diego by another popular YouTuber Doug DeMuro like Mr. Carr himself who has literally built a brand around Being the, the new car guy Top Gear meets, you know, kind of personal YouTuber reviewer and, and they also recently invested. I don't think this is really known out there, but they invested in a women's health startup called Equip. Christina and oh man, I'm. I'm escaping. Blank. Draw a blank. I had them on the podcast recently, within the last year or two. But you know who also invested in Equip was soccer phenom Alex Morgan as well too. And this is a women's health focusing on eating disorder platform. So interesting to see. Great to have a private equity firm like the Chernin Group, which I believe is really is, it's, it's someone, I think it's Chernin himself like capital investing and I actually invited him down to come down sometime and meet some more companies that might be good in that regard. So great coverage here, Fred. Glad grad you are focusing on interesting businesses that people haven't heard of and I hope we get more from this. So thanks a lot. Nice job. We've got some events coming up at least this week. I've got two coming up. I've got the San Diego Founders Hikers and the new Now San Diego Founders plunge that we do. Whoever wants to hike with us up Torrey Pines first Friday of each month and then a few of us jump in the ocean right after, which should be fun. And then that same day I'm kickstarting back up again, the welcome to San Diego Tech ecosystem. It's a 45 minute call virtual where you can tune in, introduce yourself and see where we can get you plugged into the community. So we'll be doing that at noon on Friday as well. So should be a good way to jump right back in. As always, you know, find other events that are happening by looking at the Social Coyote newsletter by Jonah Peake. We'll link that here. He puts out a great newsletter on what's happening over the next one to two weeks. Some big national international events that are happening. JP Morgan Biotech Conference is happening next week up in San Francisco. I've been hearing non stop of people talking about, you know, I'm out of office, I'm at J.P. morgan. That's a great sign that people are going back to it in person because I think last year not as many did. And CES as well actually has got pushed to that same week I believe too. It used to be this week, but I believe CES is a week later. So be interesting to see. It'll be a quiet week in town. Because everyone will either be at JPM or ces but I feel like people are just getting started on the year. What's any other events coming up on your radar?

Fred, I think you covered it. You know the San Diego founders hype is really great because you get to meet wide ranging of folks from bankers to startup founders to even investors sometimes. So I definitely will try to make it out this Friday. And the J.P. morgan conference is. Is one of the biggest helper care healthcare conferences of the year and so I expect there might be some conversation, maybe some M A conversations have coming from that Congress from that event. So. Oh yeah, we'll be closely following that and we'll continue to highlight financing news. Q4 is typically the time where people are having these conversations of raising and so I expect there's going to be some announcements or some major fundings and so stay tuned, we'll cover them on the podcast.

Yeah, and actually you and I need to revisit SHIELD AI because some even bigger funny news just kind of trickled out around that. So I think on our next one let's do it a little bit deeper on SHIELD in that regard too. But I agree. Yeah, I got definitely a lot of, a lot of December announcements for not announcements like hey we're raisin wanna wanna look at it kind of thing. So I agree more was to come from here. Thanks all for tuning in. We appreciate it. Make sure you're following Fred's newsletter linked here in the show notes and the tacos and tech podcast for up two minute news and event of going on in the San Diego tech ecosystem. And Fred, thanks again. We'll talk to you soon.

Always a pleasure Neil.

Cheers.